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New jobs forecast gets better for City

Friday 23rd April 2010

Forecasts for growth in the number of City jobs have been revised upwards by the influential consultancy centre for economics and business research, following a jump in profits from the financial sector.

The cebr said the number of City jobs was forecast to rise by 14,000 this year and 8000 in 2011 taking employment in the City above 2008 levels.

In October 2009, the cebr projected that around 9000 jobs would be added over the course of 2010. This figure has now been revised up to 14,000 due to the speed with which the financial services sector has turned the corner. Large first quarter profits announcements are expected over the coming weeks as institutions have taken advantage of record low interest rates and the fewer number of players in financial markets.

The cebr estimates the financial crisis cost 49,000 wholesale finance jobs over the course of 2008 and 2009 as firms put containment operations into effect.

It now expects 22,000 jobs will be added over the course of the next two years as the financial sector returns to growth. However, the cebr warns that the Bank of England will need to maintain its loose monetary policy stance for some time ‐ in part to counter the fiscal drag on economic growth produced by a sharp public sector correction over the coming years.

A sluggish recovery and a lower rate of job creation mean employment in the City will take time to return to pre‐recession levels.

The cebr's forecast for the medium term is that the City job numbers will gradually recover from 2010 and rise to 329,000 in 2012. This is still well short of the 354,000 in 2007.

The total level of City jobs is expected to remain below 2007 peak levels for at least a decade as growth in financial markets remains structurally lower than experienced during the pre‐2007 boom. Under the cebr's central scenario, wholesale financial services employment in London is not expected to return to 2007 levels until 2021.

There are three good reasons to be cautious about the future growth of City jobs:

1 Lower levels of capitalisation mean banks cannot lend as much and hence cannot grow as fast as they did before the financial crisis;
2 The banks, themselves, are being additionally cautious, especially as the fiscal and monetary policy outlook remains so unclear;
3 Tax and regulatory regimes will undoubtedly be tightened over the next few years.

Benjamin Williamson, economist at cebr and one of the report’s authors, said: "The fact that the City is looking healthier is by and large a good thing. There are significant benefits from a dynamic City such as the tax revenues that fund a large part of public spending.

"However, both the tax and regulation policy for the City are now up in the air. There has been a move towards international agreements with respect to tax and regulation of the financial service industry. The problem is that some of the people behind such agreements will not necessarily have an economic interest in a healthy City of London. It is going to be critical to provide a form of regulation which looks after the stakeholders of the City and aids the recovery of the UK economy as well as limiting the scale of excesses."

Mike Jones

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